Malaysia should diversify for economic growth, says UOB

PETALING JAYA: UOB Malaysia economist Julia Goh said Malaysia should further diversify away from traditional export sectors towards higher value-added segments to support its economic growth with the breakdown of the Trans-Pacific Partnership Agreement (TPPA), which saw the lost of trade opportunities for the country.

Given Malaysia’s high dependence on trade and strong financial linkages, potentially destabilising protectionist US policies or political fallout that threatens the economic stability of the EU, will also challenge the country’s economic growth this year.

Goh opined that Malaysia should continue to facilitate intra-regional exports through Asean and Asean trade partners and reinforce regional integration within Asia.

However, the key growth driver for the Malaysian economy and its neighbouring Asean economies in the longer term will stem from the development of mega infrastructure projects that improve connectivity and facilitate mobilisation of goods, services, and people.

She noted that without the US in the TPPA, it is unlikely that the other 11 members will push ahead with the deal – instead the members are likely to focus on the Regional Comprehensive Economic Partnership (RCEP), which is a more Asia-centric trade deal that is being negotiated between 16 countries including Asean, Japan, China, India, South Korea, Australia and New Zealand.

Market size of RCEP is US$23 trillion (RM102 trillion) or 30% of global GDP.

If the RCEP is realised, she said it would open up opportunities particularly for Vietnam, Malaysia, South Korea, India, China and Hong Kong, given some similarities in the trade deals.

As president Trump deems the large trade deficits between the US and China as unfair, Goh said other trade partners with similar “unfair” advantage would also be at risk, including Malaysia, alongside with countries like Mexico, Canada, Japan, Vietnam, South Korea and Thailand.

Singapore and Hong Kong would likely escape on this front given that the US has trade surpluses with these two economies.
Goh believes the growth spotlight will remain in Asia where countries are embarking on large scale infrastructure programmes to boost long-term competitiveness and drive sustainable growth.

“Rising Asian affluence will be a net positive for consumption-related sectors such as the transport, logistics, utilities, information and communications technology, healthcare and education sectors,” she added.

Goh also highlighted that Asean has been successful in its draw of foreign direct investment (FDI) whereby the FDI inflows into Asean is estimated to surpass China for the first time in 2017, after falling behind for more than a decade.

She said the stock of FDI accumulation in Asean has been rising at a steady annualised rate of 15% since 1980.

“Even with a conservative assumption of about 7.3% in annual growth (i.e. half the growth rate between 2009 and 2013), we expect the stock of investment in Asean to nearly triple to US$5.2 trillion in 2030, from our estimates of US$1.8 trillion in 2015,” she noted.